Packaged goods companies upbeat on normal monsoon

Packaged goods companies expect a good monsoon to have a positive impact on consumer sentiments, particularly rural demand

Crisil said a normal monsoon was crucial to push economic growth, which has slowed last year under the lingering impact of demonetisation and disruptions due to implementation of the GST resulting in decline in consumption demand. Photo: Priyanka Parashar/Mint

New Delhi: Packaged goods companies are expecting better sales during the second half of this fiscal year ended 31 March 2019. The expectations are based on forecast of normal rainfall during June-September monsoon season by India Meteorological Department (IMD).

A normal monsoon is expected to boost kharif crops that solely depend on rainfall, essentially across farmland without assured irrigation. A good Kharif will result in better agriculture produce which in turn will lead to more cash in the hands of people across rural areas. This is expected to increase consumer demand across rural areas that account for about 40% of sales for packaged goods companies which have seen sluggish growth in rural markets in the past couple of years.

“A normal monsoon will augur well for the rural economy as it will positively impact farm productivity thereby leading to enhanced incomes of farmers. This, in turn, will lead to an increase in rural demand and spur consumption of FMCG (fast moving consumer goods) products,” said a spokesperson at Kolkata-based cigarette-to-shampoo maker ITC Ltd.

Credit rating firm Crisil Ltd, in a note, said that a normal monsoon was “crucial to push economic growth, which has slowed last year under the lingering impact of demonetisation and disruptions due to implementation of the goods and services tax (GST)” resulting in decline in consumption demand.

Brokerage firm PhillipCapital India Research said in a 17 April note that normal monsoon would “aid rural recovery”. “With higher rural income, there will be more headroom for spending, bringing back consumer preference into play,” it added.

New Delhi-based packaged good firm Dabur India Ltd’s chief financial officer Lalit Malik expects a good monsoon to have a positive impact on consumer sentiments, particularly, rural demand, though with a lag effect. “Normal rains this year, as has been forecast, should lead to an improvement in consumer sentiments and demand growth in the hinterland. The government’s rural focus, particularly the decision to hike MSPs (minimum support price), would put more disposable income in the pockets of farmers, thereby add to the positive sentiment and drive consumerism,” added Malik.

Brokerage firm CLSA Ltd echoed Malik’s view. “The government announced a minimum of 50% margin on crops, implying a 15% rise in minimum support prices. This along with the support of normal monsoon may increase rural income,” the brokerage firm said in a note.

Kolkata-based packaged goods company Emami Ltd that gets about 50% of sales from rural markets is upbeat. “With a normal monsoon on the horizon Emami is targeting high double digit growth from rural,” said Madan Pandey, president (sales), Emami.